Chapter 4
THE THREE COMMON GOALS
BEFORE WE HIT THAT REBOOT BUTTON, let’s get absolutely clear on what performance management is and why we do it.
Because of its management-by-objectives roots, traditional performance management has historically operated as an individual’s scorecard of accomplishments (or failings). However, in recent years we’ve seen more organizations try to do more with their performance management programs, using them as a means to focus on the development of the individual employee and to link individual goals to company objectives. HR professionals talk about a variety of goals they hope to achieve, including “differentiated distribution of rewards, based on individual performance”;1 “creating a high performance culture”; “ensuring equitable compensation”;2 or “providing employee coaching and mentoring.”
As varied (and jargon laden) as those responses are, they are all perfectly valid answers. Each organization is unique, with different levels of maturity, mixtures of employee demographics, and diverse cultures and values that have evolved over time. That uniqueness means they tend to weigh some outcomes more heavily than others; one team, for instance, might place a higher priority on aligning strategies, another on developing talent. Yet, despite these variances, most organizations are trying to meet their desired outcomes by doing the same thing as everyone else. Doesn’t it seem a little crazy that we’re investing so much time and resources trying to create experiences that are unique to our organization’s wants and needs, yet we’re so often still grabbing that dusty off-the-shelf performance management manual published in 1950 in hopes that it will get us there? No matter how many bells and whistles we might add, they can’t disguise the fact that the solutions we’re arriving at just aren’t cutting it.
So when getting clear on the goals of performance programs, we begin by accepting that each organization’s expectations will not be exactly the same. However, to understand these differences, it is helpful to anchor our thinking with a basic framework. This framework defines what I call the Three Common Goals. It represents the universal outcomes of strong performance programs, desired outcomes that have become clear to me in my research and my quarter-century of consulting. Think of these three interrelated goals as the essence of all performance programs and the basis from which each organization’s unique differences evolve. More simply, consider them the fundamental building blocks for the design project ahead of us.
Performance Management’s Three Common Goals
In my experience, every organization is ultimately using its performance management program to develop its people’s skills and capabilities, reward all of its employees equitably, and drive overall organizational performance by ensuring that team and individual goals are aligned and reflect the goals of the organization. In other words, I believe that the Three Common Goals of any performance program should be as shown in figure 4.1:
Figure 4.1 The Three Common Goals of Performance Management
How these goals are prioritized or emphasized—what “good” looks like related to each goal—will differ from organization to organization. So, too, will the way in which each organization sets about making those goals a reality. But any high-performing organization will have some combination of these three ingredients in its performance management recipe.
In the next chapter, we’ll explore how you can design your own modern approach to performance, anchored by these three goals. But first, let’s get familiar with our ingredients.
Goal #1: Develop people
It seems obvious that the development of employees should be a key outcome of any performance solution. After all, isn’t that what performance reviews and career discussions are all about? Well, yes, they should be. But as we discussed earlier, this objective is often the one that loses out. And things get especially muddled when we get hung up on our rewards and ratings processes. As they say, the road to hell is paved with good intentions.
So let’s think about what a strong performance management solution truly focused on developing people might look like. First, it would provide in-the-moment coaching, helping individuals to understand what went well and what could be enhanced the next time around. We all know this intuitively, but many of us are so used to stockpiling this feedback for the annual review that we don’t do this for our employees. Further, they’d receive suggestions to support their growth in an environment that would allow them to absorb the suggestions without feeling threatened or having something at risk (like their pay raise).
Next, individuals would also have information at their disposal that would provide insight into what is expected in their current role and any future roles to which they hope to advance. Resources for development might include mentors or coaches who are their advocates within the organization. There also could be self-assessment and training tools that would link to their development plan, providing ideas and resources to support their unique goals.
Admittedly, I’ve just given you a very employee-centric view of the develop people goal. But let’s not forget the value that this goal, when well-executed, brings to our organizations as a whole. For one thing, offering a performance program with a strong emphasis on developing people gives employers a rich view of their inventory of talent. Those employee assessment tools and other resources benefit the organization as well as employees by providing insight into the skills our people have, what capabilities we might easily grow, and what skills and capabilities are missing or at risk. What’s more, they can tell us how individuals want to advance their careers and how well their personal goals align to the direction of the organization. And don’t forget that if the program engages and empowers employees to take greater ownership and gives them a sense of involvement in their career decisions—which it would—then we’ll see employee engagement and retention increase.
Need proof? A 2010 Executive Conference Board study showed a direct correlation between employee satisfaction/engagement and the degree of employee involvement in job design decisions. They noted that being aligned with their job interest is the single most important driver of commitment for employees.3 And while we don’t have the data to tie performance programs directly to increased organizational performance, the linkage between employee engagement and organizational performance is well supported by years of research.4, 5, 6
So, how well does your current program deliver enhanced people development? I’m betting the answer is “Not so well.” And that’s understandable—more often than not, HR leaders and management are too preoccupied with overseeing and managing their annual performance processes to focus on developing their people or on providing the tools to empower individuals to own their development. It’s high time we changed how we spend our time.
Goal #2: Reward equitably
This is the ingredient that I find most often confounds people when they are looking at building a new performance solution. It’s the dimension that most often gets in the way of doing something different from what we have always done. So let’s take a little time to be sure that we understand it and the role it plays in performance programs.
First, let’s be clear on what the words really mean. Equitable is defined by the Oxford Dictionary as “fair and impartial.” It’s important to note that equally and equitably are not the same thing. For example, let’s say you worked for three weeks writing a strategy for a new business unit, and your peer proofread it and tuned it up for you over the past few days. I’d sure hope you’d want your peer to receive some recognition for her support, but I doubt you’d be happy if her reward and recognition was equal to yours. Instead, you’d want the recognition to be equitable, meaning that each of you would get as much credit as you deserved.
When organizations speak of differentiated pay and rewards, then, they are looking for those rewards to be distributed in an equitable manner—fairly, unbiased, and consistent with the level of contribution or impact. It’s also important to note that rewarding equitably is not just about pay. We’re talking about total rewards: compensation, formal and informal recognition, benefits, promotions, project assignments, you name it.
From an employee’s perspective, equity is all about fairness. It’s natural for employees to ask themselves questions like “Am I fairly paid for my skills?” “Am I recognized and rewarded fairly compared with those around me?” “Are reward decisions being made in a fair and unbiased manner?” Remember Fatal Flaw #8: We are not Pavlov’s dog? While extrinsic rewards are rarely a driver of human behavior, the belief that a system is unfair or biased is a significant driver in dissatisfaction. In other words, confidence that the system is equitable makes for happy and engaged employees.
However, only about a third of employees feel that their current performance management programs are resulting in equitable rewards.7 Even worse, according to the Corporate Executive Board’s 2013 study Breakthrough Performance in the New Work Environment, fewer than one in four HR executives (the leaders who seemingly should support it) believe that their current performance management system reflects true employee performance.8
In my discussions with HR and business leaders, two concerns relating to equitable rewards surface again and again. The first is that while most organizations intend to deliver differentiated rewards and often have publicly made a commitment to do so, the slight variations between a top performer and a moderate performer are seldom likely to pass a test of true differentiation (except in the cases of highly measurable areas like sales). Too often, the budgeted and allocated compensation ranges are so narrow that it’s nearly impossible to deliver on the intent to provide differentiated rewards across employee performance levels. In other words, trying to recognize star performers for their contributions and differentiate their increase from your solidly second-tier performers when you have a budgeted increase range of only 4 or 5 percent is pretty much impossible. For many managers, this exercise is frustrating at best, and at worst it reinforces the view that they’re as much pawns in the game of performance management as those they’re reviewing.
The second concern that HR/talent leaders frequently share with me is that they’re stuck on how to distribute rewards equitably without a numbers-driven rating system that comes with strong oversight and control from the compensation team. Without alignment, support, and collaboration between the functional teams that own the performance process and the compensation or total rewards plan, they are stuck. I get it. We need to recognize that many compensation teams have made a science out of their compensation models. They’ve spent years doing the research, building the models, and getting the executives and board to buy in. To walk away from that investment in order to trade it in for a people-powered process is not an easy shift to make.
But something has to give, or we’ll just keep treading water. First, you need to get a clear view of what reward equitably means to your organization and how you can best achieve that goal in your unique environment. Second, you’ll need to ensure that you build a shared understanding of your vision and secure the early support of key stakeholders, like the people who own the total rewards process, before you ever get started. And then, of course, I recommend putting in place a “pay for capability, reward for contribution” program as outlined in Fundamental Shift #8. Base your pay on the market value of your employees’ skills and experience; then grant bonuses for exceptional work. Simple as that.
Goal #3: Drive organizational performance
The goal of driving organizational performance is probably the most recent addition to our collective thinking on performance management. This is not surprising, given the increasing amount of research that has demonstrated the correlation between an employee’s connectedness to the mission and vision of his or her company and the measurable performance of that organization. The alignment of employees with strategy and business goals is a hallmark of high-performing organizations; in fact, high-performing organizations are two and a half times more likely than lower performing organizations to get this key to successful execution right.9
Gallup further validates this finding in its Q12 employee engagement survey, which asks respondents to indicate agreement with the following statement: “The mission or purpose of my company makes me feel my job is important.” Its extensive research shows that there is a direct correlation between how employees rate that one question and employee retention, customer metrics, productivity, and profitability. Gallup concludes that “the best workplaces give their employees a sense of purpose, help them feel they belong, and enable them to make a difference.”10 Simply stated, we now understand how important it is to ensure that teams and individuals are fully aligned to the goals of the company.
On a human level, I’m talking about individuals and teams feeling an emotional connection to the purpose of the organization. That means they understand the vision, they believe in it, they want to be a part of it, and they see how their work and roles contribute to the broader goal. While I strongly believe that connecting emotionally is where you get the biggest bang for your buck, that connection also must translate into a framework that helps each employee make good decisions and focus on the right work, day in and day out. Most current talent management systems have solved for this by including functionality in their performance management modules that enables cascading goals. This technical execution of goal alignment enables the cascade of an organization’s strategic goals to teams and managers, in some cases going so far as to distribute managers’ goals across their teams on a weighted basis. For example, if my goal as an IT manager is to deliver a new application at the end of the quarter, then I might distribute the work across my team, allocating the more complicated coding to the more experienced and proven development resources, while ensuring that each team member has been assigned a piece of the total application.
Drive organizational performance might sound as if it has more to do with the organization than the employee, but it doesn’t. Sure, organizations want their teams and employees aligned, doing the right work, and not wasting time on efforts that are off-strategy. But we have to recognize that, as humans, we also crave the feeling of being a part of something. Most people want to feel that the work they are doing is important and purposeful. This connectedness is a vital part of an employee’s career satisfaction and overall performance, and considering its value to both the organization and the individual, we have to find ways to make sure that it happens.
Let’s Abandon the Knotted Solution
One of the most notable challenges posed by our traditional approach to performance management is that we’ve tried to deliver all three of these goals in one highly integrated solution that is often overly complex and poorly defined. We rarely start with a clear view of the importance of each goal to our organization, or the implications that each goal presents to our team. In other words, we’re building from the top down rather than from the bottom up. What’s more, we are often fuzzy on how interconnected each of these goals should be within the design of our solution. For example, can we answer questions like “Does the effort that individuals invest in their own development affect how they will be rewarded?” or “Are individuals’ contributions to the articulated goals of the organization the only things that influence their rewards?” Very few of us can. This lack of clarity regarding the three goals of performance management and how they relate to one another is, I believe, a significant reason why so many organizations have no idea where to start in creating a better solution.
If an organization doesn’t do the work to assess the Three Common Goals and answer the hard questions in the context of its own unique culture, it isn’t going to get very far toward a new solution.
I find that when an important concept needs to be well anchored (and understanding the Three Common Goals is an important concept), it helps to have a visual image. When working with clients, we like to use the simple analogy of a bicycle frame as that visual support. So ride along with me for a minute as I explain this visual aid.
Selecting the Right Frame
A bike frame—though essentially a triangle—can vary based on the purpose, style, size, and expected usage of the bike. One side may be longer than another, the thickness of the frame may change, and all three points of the core frame may or may not be connected. A bike’s frame may have a small or large triangle at the core, depending on the rider and the bike’s purpose.
Figure 4.2 The Three Common Goals visualized on a “performance management bike.”
Now apply that concept to the frame of your performance management bike, which is made up of the Three Common Goals: develop people, drive organizational performance, and reward equitably (see figure 4.2). While all three goals are likely to be present in your performance management bike, how pronounced each goal is and how connected the three are to each other should vary from organization to organization. If you’re a mature global consumer products company, your performance management bike is likely to look different from the one that the forty-person design firm down the street just built, just as a Tour de France racing model will differ from your child’s first push bike.
Riding the Wrong Bike
The problem with performance management today is that we’ve all been riding pretty much the same performance management bike for far too long, and more often than not we keep pulling that same model out of storage every year without much thought about whether it has the unique features we need to drive real performance in today’s world. In earlier chapters we explored how the world has changed, touched on many of the advances in our insight on motivation and collaboration, and exposed traditional PM’s shortcomings in meeting these changes.
With that knowledge as our foundation, we now recognize that, metaphorically speaking, we’re simply not going to see a true competitor pulling up to the starting line of the Tour de France with a banana-seat bike decked out with training wheels, a daisy basket, and streamers. When elite performance is required, this kind of bike is a joke—as is the idea that conventional performance management will get today’s organizations, including yours, where they want to go.